AFAs Heavily Used by NJ Midsized Firms, But Still 'Out of Comfort Zone' for Some
"AFAs are outside of the comfort zone for many law firms. They don't think in terms of the project cost," said Donald Scarinci of 66-lawyer Scarinci Hollenbeck in Lyndhurst.
December 29, 2017 at 10:00 AM
6 minute read
While the use of alternative fee arrangements seems to have become “the rule and not the exception,” as one New Jersey midsized firm leader put it, the use of such arrangements, and client demand for them, still varies widely by firm and practice area, it seems.
“It's very easy to say, 'my rate is $500 an hour,' and dash out a retainer agreement that says that,” said Donald Scarinci of 66-lawyer Scarinci Hollenbeck in Lyndhurst. ”AFAs are outside of the comfort zone for many law firms. They don't think in terms of the project cost.”
But it's not only firms that can be sheepish, according to Scarinci: he estimated that 60 percent of his firm's clients, when given a choice between an AFA and traditional hourly billing, choose the latter.
Aside from being somewhat outside the comfort zone, crafting an AFA can be time-consuming at the outset of a matter, and doesn't necessarily mean less clock-watching once the work begins in earnest. And most firm systems, including those that track billing and realization rates, are time-based. Even in-house counsel might be more confident in an hourly structure because they're accustomed to determining the value of legal services that way, lawyers said.
According to a recent Association of Corporate Counsel survey, while 42 percent of respondent chief legal officers projected that their use of alternative fee arrangements will increase in the next year, CLOs in the U.S. reported that an average of 26 percent of their outside spend is on AFAs, which was the lowest of any region represented by the survey.
Other New Jersey-based midsized firms, including Brach Eichler and Connell Foley, have previously acknowledged using AFAs, albeit with different approaches as to whether it is the firm or client who typically broaches the subject first.
Other midsized firms contacted recently declined interview requests.
Despite the variations and uncertainties, there are New Jersey midsized firms dealing confidently with AFAs.
At Atlantic City-based Cooper Levenson, AFAs have become an ordinary part of firm business over the past five years, and nonhourly arrangements are pitched to clients in the normal course, according to Robert Salad, chairman of the 70-lawyer firm.
“We affirmatively raise these issues,” Salad said. “We don't wait for the client to ask what the fee is going to be.”
As a result, “the client is appreciative, and we know our budget,” he said. “I think it's led to a very healthy relationship with our clients.”
To get to that point, Cooper Levenson has had to “evolve the process” of client engagement, Salad said. That means discussion among the attorneys involved in a matter, if it's more than one, as well as among the chairs of the appropriate departments, if more than one practice or specialty is required.
Despite the front-loaded process, lawyers still must watch the clock when doing the work.
“We do track that time to gain empirical information,” as more data now means more accurate pricing for AFAs later, Salad said.
Fixed fees are the norm on the business and tax side of the firm's practice, including estate planning, and loan transactions handled on behalf of banking institutions.
Salad said the firm is more conservative about AFAs in litigation and mergers and acquisitions, “because you don't really know what you're getting into.” But often a cost range can be provided, and in litigation, the firm can set budgets for the motion, discovery and trial stages of a matter.
According to Scarinci, Scarinci Hollenbeck routinely implements AFAs and has begun experimenting with such arrangements in the litigation context, in part by quoting prices by stage of litigation, in a process seemingly similar to what Salad described.
“Everyone says it's impossible; it's not impossible” to work litigation on a fixed fee, and firms can gather data and become familiar with how long matters take by vicinage and even by judge, he said.
More commonly, fixed fees are used for real estate matters, where often the obtainment of financing triggers a fee payment. Other types of fixed fees might call for a monthly payment schedule, according to Scarinci.
When developing an AFA, the firm's CEO and CFO are consulted. They rely on decades' worth of data rather than a price list, Scarinci said. “It takes a lot of time—that's the downside.”
Attorneys at Scarinci Hollenbeck, like Cooper Levenson, track time even when working on AFAs, not only to amass data, but also as a management tool, Scarinci said.
Thanks to its long history with contingency-fee work in its plaintiff-side practice, at 90-lawyer Stark & Stark, based in Lawrenceville, nonhourly billing has “sort of been baked in” to the firm's business model, but alternative fees go well beyond plaintiff work, according to managing partner Michael Donahue. He estimated that about half the firm's nonplaintiff work is done on nonhourly arrangements, including common use of fixed fees for community association work, as well as some transactions and compliance work performed for investment adviser clients.
“We have a pretty good idea of where our waterline is,” Donahue said, crediting, as others did, data the firm has accumulated. “It's really having a firm understanding of the service you're providing and what it takes to provide it … without devaluing our services.”
At Stark & Stark, too, there is an up-front process to implement AFAs, but successfully adopting alternative billing models also requires evaluating matters that have already concluded, he said.
“Could we have delivered these services using a nonhourly arrangement?” is the question to ask, according to Donahue. “We can to some extent geek out about how things could've been done better.”
Stark & Stark does actively pitch AFAs to clients, but when it comes to clients vociferously demanding AFAs, “I believe the perception is a little greater than the reality,” Donahue said.
Implementing nonhourly billing might be a logistical challenge, but the call for an industry movement toward project-based pricing isn't going away.
“Clients generally don't care what an attorney's hourly rate is. They generally care how much something is going to cost them,” Scarinci said. “[They] want to be your partner in how you spend their money.”
And as a goodwill gesture, spending time with a prospective client on pricing tends to pay off, Scarinci said.
“It's pretty rare not to get the client after you make that effort.”
This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.
To view this content, please continue to their sites.
Not a Lexis Subscriber?
Subscribe Now
Not a Bloomberg Law Subscriber?
Subscribe Now
NOT FOR REPRINT
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
You Might Like
View AllElection Law Spending Is on the Rise, but Big Firms Have Reasons Not to Cash In
6 minute readTroutman Pepper Accused of Inattentive Case Management in $59M Malpractice Suit
7 minute readTrending Stories
- 1Decision of the Day: Administrative Court Finds Prevailing Wage Law Applies to Workers Who Cleaned NYC Subways During Pandemic
- 2Trailblazing Broward Judge Retires; Legacy Includes Bush v. Gore
- 3Federal Judge Named in Lawsuit Over Underage Drinking Party at His California Home
- 4'Almost an Arms Race': California Law Firms Scooped Up Lateral Talent by the Handful in 2024
- 5Pittsburgh Judge Rules Loan Company's Online Arbitration Agreement Unenforceable
Who Got The Work
Michael G. Bongiorno, Andrew Scott Dulberg and Elizabeth E. Driscoll from Wilmer Cutler Pickering Hale and Dorr have stepped in to represent Symbotic Inc., an A.I.-enabled technology platform that focuses on increasing supply chain efficiency, and other defendants in a pending shareholder derivative lawsuit. The case, filed Oct. 2 in Massachusetts District Court by the Brown Law Firm on behalf of Stephen Austen, accuses certain officers and directors of misleading investors in regard to Symbotic's potential for margin growth by failing to disclose that the company was not equipped to timely deploy its systems or manage expenses through project delays. The case, assigned to U.S. District Judge Nathaniel M. Gorton, is 1:24-cv-12522, Austen v. Cohen et al.
Who Got The Work
Edmund Polubinski and Marie Killmond of Davis Polk & Wardwell have entered appearances for data platform software development company MongoDB and other defendants in a pending shareholder derivative lawsuit. The action, filed Oct. 7 in New York Southern District Court by the Brown Law Firm, accuses the company's directors and/or officers of falsely expressing confidence in the company’s restructuring of its sales incentive plan and downplaying the severity of decreases in its upfront commitments. The case is 1:24-cv-07594, Roy v. Ittycheria et al.
Who Got The Work
Amy O. Bruchs and Kurt F. Ellison of Michael Best & Friedrich have entered appearances for Epic Systems Corp. in a pending employment discrimination lawsuit. The suit was filed Sept. 7 in Wisconsin Western District Court by Levine Eisberner LLC and Siri & Glimstad on behalf of a project manager who claims that he was wrongfully terminated after applying for a religious exemption to the defendant's COVID-19 vaccine mandate. The case, assigned to U.S. Magistrate Judge Anita Marie Boor, is 3:24-cv-00630, Secker, Nathan v. Epic Systems Corporation.
Who Got The Work
David X. Sullivan, Thomas J. Finn and Gregory A. Hall from McCarter & English have entered appearances for Sunrun Installation Services in a pending civil rights lawsuit. The complaint was filed Sept. 4 in Connecticut District Court by attorney Robert M. Berke on behalf of former employee George Edward Steins, who was arrested and charged with employing an unregistered home improvement salesperson. The complaint alleges that had Sunrun informed the Connecticut Department of Consumer Protection that the plaintiff's employment had ended in 2017 and that he no longer held Sunrun's home improvement contractor license, he would not have been hit with charges, which were dismissed in May 2024. The case, assigned to U.S. District Judge Jeffrey A. Meyer, is 3:24-cv-01423, Steins v. Sunrun, Inc. et al.
Who Got The Work
Greenberg Traurig shareholder Joshua L. Raskin has entered an appearance for boohoo.com UK Ltd. in a pending patent infringement lawsuit. The suit, filed Sept. 3 in Texas Eastern District Court by Rozier Hardt McDonough on behalf of Alto Dynamics, asserts five patents related to an online shopping platform. The case, assigned to U.S. District Judge Rodney Gilstrap, is 2:24-cv-00719, Alto Dynamics, LLC v. boohoo.com UK Limited.
Featured Firms
Law Offices of Gary Martin Hays & Associates, P.C.
(470) 294-1674
Law Offices of Mark E. Salomone
(857) 444-6468
Smith & Hassler
(713) 739-1250